Panasonic (6752): Time for Parent, Panasonic to Buy Out Minority PanaHome (1924)
At IFA Berlin, Panasonic is showcasing a high-rise development which owes a little to JG Ballard but a lot to the smart town concepts that have been trialled across Japan over the past decade, including Panasonic's very own "Fujisawa Sustainable Smart Town" or Fujisawa SST.
In this report, we look at the value-added Panasonic can bring to “smart cities” / “smart homes” utilising two of its keys strengths – solar power and energy storage and the implications for PanaHome, which is 52% owned by Panasonic and is incorporated in the catch-all “Others” division.
The market was sceptical of Panasonic’s FY18 ¥500bil target for housing revenue, i.e. for PanaHome, because it suggested 5% CGAR in a market that was barely growing. In addition, the naysayers were no doubt feeling vindicated when PanaHome reported an even wider operating loss of ¥2.5bil in FY16 Q1 than the ¥1.65bil loss reported the year before.
However, we do not think Panasonic has “plucked” this target out of nowhere and suggest the seasonality in PanaHome’s earnings was overlooked given it has lost money in nine of the last ten Q1-period. This year PanaHomes is forecasting ¥21.5bil in OP on sales of ¥400bil. Assuming another ¥50bil in revenue growth in FY17 and FY18, respectively, then PanaHome would meet the ¥500bil revenue target. In other words, if Panasonic's management did have an agenda for PanaHome, then the business could certainly step up and meet those targets.
However, if PanaHome is indeed delivering the goods, that certainly isn't reflected in the share price as it is essentially selling for the cash on the balance sheet. With net cash of ¥124 billion and ¥10 billion in minorities, PanaHome's market cap of just ¥134bil means that enterprise value is just ¥20bil, which is less than the company is expected to generate in OP this year (at least as far as management forecasts are concerned). Meanwhile, total equity is ¥155bil. Therefore, from Panasonic's management's viewpoint, the situation is absurd. The company is essentially giving minorities around ¥6bil in net profit for free each year. The logical thing, now, is for Panasonic to buy out PanaHome's minority shareholders.
Read on for more details and note, connected to all this, there is the recent ¥400bil bond issuance by Panasonic.
Panasonic offers a range of products, systems and components for consumer, business and industrial use based on electronics and precision technology, expanding to building materials and equipment, and housing business. Co. divides its businesses into five segments: Appliances, Eco Solutions, Connected Solutions, Automotive & Industrial Systems and Other. Co.'s principal products include home appliances such as refrigerators, room air conditioners, washing machines and vacuum cleaners; lighting fixtures and electric lamps, video and audio equipment, electrical components, batteries, semiconductors and optical devices.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
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